BABST VS CA

FACTS: Elizalde Steel Consolidated, Inc. (ELISCON) obtained a loan from Commercial Bank and Trust Company (CBTC) in the amount of P8,015,900.84, evidenced by a promissory note. ELISCON defaulted on its payments, leaving an outstanding balance of P2,795,240.67.

The letters of credit, on the other hand, were opened for ELISCON by CBTC using the credit facilities of Pacific Multi-Commercial Corporation (MULTI) with the said bank. Subsequently, Antonio Roxas Chua and Chester Babst executed a Continuing Suretyship, whereby they bound themselves jointly and severally liable to pay any existing indebtedness of MULTI to CBTC.

The Bank of the Philippine Islands (BPI) and CBTC entered into a merger, wherein BPI, as the surviving corporation, acquired all the assets and assumed all the liabilities of CBTC. Meanwhile, ELISCON became heavily indebted to DBP as it suffered financial difficulties.

ELISCON called its creditors to a meeting to announce the take-over by DBP of its assets, including its indebtedness to BPI. Thereafter, DBP proposed formulas for the settlement of all of ELISCON’s obligations to its creditors, but BPI rejected the formula.

BPI then filed a complaint for sum of money against ELISCON, MULTI, and Babst. ELISCON argued that the complaint was premature since DBP had made serious efforts to settle its obligations with BPI. Babst, on the other hand, asserted that his suretyship covers only obligations which MULTI incurred solely for its benefit and not for any third party liability. MULTI denied knowledge of the BPI-CBTC merger.

BPI argued that it did not give express consent to the DBP take-over of ELISCON. Hence, no valid novation has been effected.

ISSUE: Whether or not BPI consented to the assumption by DBP of the obligations of ELISCON.

HELD:  Yes. The rule that consent must be “express” is not absolute for the existence of the consent may well be inferred from the acts of the creditor, since volition may as well be expressed by deeds as by words. In short, there can be implied consent of the creditor to the substitution of debtors.

In the instant case, the failure of BPI to register its objection to the take-over by DBP of ELISCON’s is deemed to be a form of implied consent on the part of BPI. BPI merely objected to the payment formula, not the substitution of debtors. BPI’s conduct evinced a clear and unmistakable consent to the substitution of DBP for ELISCON as debtor. Hence, there was a valid novation which resulted in the release of ELISCON from its obligation to BPI.

In merger, the receivables of the dissolved corporation are transferred to the surviving corporation. Thus, the surviving corporation has the power to file an action to recover any debt that pertains to the other corporation. Therefore, the cause of action should be directed against DBP as the new debtor.